Online Sales Tax: What’s the Deal?

Online Sales Tax: What's the Deal? - Quicken Loans Zing Blog

There’s been a lot of buzz about online sales tax lately since the Supreme Court rejected Amazon’s calls to change the current policy. The last Supreme Court case regarding the matter was Quill Corp. v. North Dakota in 1992, and Amazon, along with some other big online realtors, claims it’s time for an update. So how exactly does online sales tax work, and how does Amazon propose we change it?

A History of Online Sales Tax

Every state has the authority to collect sales tax on goods sold within its borders, and the majority of states do. But what about the purchases you don’t complete in person? The issue wasn’t brought up until the 1992 Supreme Court case, Quill Corp. v. North Dakota. Online shopping was almost nonexistent in 1992, so the case was really centered more on catalog sellers. Regardless, the Supreme Court ruled that unless a company has a physical presence in a state, they don’t have to collect or pay sales tax. As online shopping has increasingly grown in popularity throughout the last twenty years, state governments and brick-and-mortar businesses have begun to question the fairness of it all. Are some businesses losing out on big sales because they’re required to collect sales tax? More than that, the National Conference of State Legislators estimates that states lose $23 billion a year on online purchases that are free of sales tax.

In 2008, the state of New York decided enough was enough, and required all out-of-state Internet retailers to collect the proper sales tax from their customers in New York. Several states followed their lead, excited to receive the additional tax revenue. Three years later, Illinois’ highest court shot down a similar bill to collect sales tax from Illinois customers, making the issue controversial and confusing.

In 2011, the Marketplace Fairness Act was introduced as a nationwide solution, enabling all states to require remote sellers to collect sales tax on goods and services. The bill was widely well-received, with key supporters being the Retail Industry Leaders Association (RILA), President Barack Obama and big retailers like Walmart and Best Buy. The bill was revised and introduced again at the beginning of this year, and passed in May with a 69-27 vote. Essentially, the Marketplace Fairness Act allows each state to set their own policy regarding remote sellers collecting sales tax.

Amazon and the Supreme Court

Earlier this month, Amazon, one of the biggest Internet retailers, set out to challenge New York’s policy in the Supreme Court. Much to their dismay, the Supreme Court refused to hear the case at all. Amazon states that they support a federal sales tax and a universal policy for Internet or catalog sellers.

There are currently rivaling bills in Congress for a national federal tax, so it looks like Amazon may get their way without having a case of their own. But how soon? It’s hard to say.

What’s your opinion on online sales tax? Let us know in a comment below!


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